Returns as of 10/18/2021
Returns as of 10/18/2021
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Accenture (NYSE:ACN) and Globant (NYSE:GLOB) offer investors two different ways to invest in the IT services sector. Accenture provides a wide range of services in 200 cities across 50 countries. Globant is a much smaller player that helps companies develop their websites and mobile apps, as well as manage their digital marketing campaigns and cloud services.
The price of both stocks has risen more than 40% over the past 12 months and outperformed the S&P 500’s gain of about 24%. Both companies are also growing much faster than IBM‘s (NYSE:IBM) fading managed infrastructure services unit, which will be spun off as a separate company later this year.
Let’s see why Accenture and Globant have been outperforming the broader market and legacy IT services providers like IBM, and see which stock is a more compelling investment right now.
Image source: Getty Images.
Accenture generated $50.5 billion in revenue in fiscal 2021, which ended in August. It splits its customers into five main markets: products (28% of its revenue), communications, media, and technology (20%), financial services (20%), health and public services (19%), and resources (14%).
Accenture’s revenue rose 14% in fiscal 2021, compared to 3% growth in fiscal 2020. Its growth decelerated in 2020 as the pandemic disrupted all of its end markets except for health and public services, but its other markets quickly recovered throughout 2021 as more businesses reopened.
Accenture’s operating margin expanded 40 basis points to 15.1% in fiscal 2021, even as it ramped up its investments, and its adjusted EPS rose 18%.
For fiscal 2022, Accenture expects its revenue to rise 12%-15% and for its adjusted EPS to increase 13%-16%. It expects that growth to be primarily driven by the expansion of its cloud, interactive, industry X (digital transformation), and security services, which all generated double-digit percentage sales growth throughout fiscal 2021.
Globant’s revenue rose 24% to $814 million in fiscal 2020, which aligns with the calendar year. However, its adjusted operating margin declined 180 basis points to 15.2%, and its adjusted EPS increased just 7%.
Globant’s gross margins were squeezed by COVID-19 expenses, while lower utilization rates reduced its operating margins. But that slowdown was brief, and its growth stabilized as the pandemic-related headwinds waned.
In the first half of fiscal 2021, Globant’s revenue surged 54% year over year to $575 million as more businesses reopened. Its operating margin expanded and its adjusted EPS rose 64%. For the full year, Globant expects its revenue to rise 52% and for its adjusted EPS to grow “at least” 46%.
Globant doesn’t split its business into specific end markets like Accenture, but it expects to continue forging new partnerships across the automation, gaming, e-commerce, fintech, connected TV, and online education markets to support its long-term growth. It also expects a post-pandemic recovery in the U.S., its largest market, to amplify its gains this year.
Accenture trades at 32 times forward earnings and four times this year’s sales. Globant has a much higher forward P/E ratio of 65 and trades at nine times this year’s sales.
Accenture’s valuations look a bit high relative to its growth rates, but its resilience during the pandemic, its diversification across multiple markets, and the expansion of its higher-growth segments all justify that slight premium. The company also pays a decent forward dividend yield of 1.2%.
Globant might seem a lot more expensive than Accenture, but its valuations are fairly reasonable in relation to those of other high-growth tech stocks with comparable growth rates. Its streamlined focus on “digital transformations” and a lack of slower-growth legacy IT services could also attract more growth-oriented investors than Accenture. However, Globant doesn’t pay any dividends, and it probably won’t change that policy anytime soon.
I personally own shares of Accenture, but I think Globant is a more compelling investment right now. Globant is smaller, its focus is narrower, it’s growing a lot faster, and its stock hasn’t overheated yet.
Both stocks are still sound long-term investments, but I think Globant — which only has a market cap of $12 billion, compared to Accenture’s market cap of $209 billion — has a lot more room to grow in the IT services market.
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Stock Advisor launched in February of 2002. Returns as of 10/18/2021.
Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
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